Migrants Contribute to increase in Housing demand

With nearly 100 people per day moving to live in Western Australia, there is no wonder we are witnessing an amazing demand for housing. Some 31,400 people made WA their home last year requiring some 24,000 plus homes to live in. Coupled to this is the fast growth of single person households and there is no wonder that our building industry is stretched and the amount of available homes for sale are in short supply.

The people moving into WA are mostly ready to buy, having sold their previous home to move to WA. For example, those migrating from the United Kingdom where the general median house price is equivalent to AUD$420,000 and even greater in the specific area of London where the median house price is equivalent to AUD$578,000, arrive in Perth and are overwhelmed at the local median house price of just $297,000.

When you consider that in the last 12 months 46,732 properties sold in Perth, this incoming demand can account for around half of the total sales occurring if they all decide to buy an established home once they arrive in Perth.

Locally, people typically move every 8 – 13 years so many of the recently built homes in the building boom since 1998 through the GST period remain tightly held.

There are no surprises then to find a shortage of property available for sale in Perth. Similarly, when properties do become available for sale, sell quickly if realistically priced. Perth is still cheap real estate in Australian terms and certainly on a worldwide scale where most of these people have already sold their homes for a lot more and cashed themselves up ready to buy in WA.

This can be evidenced in the higher activity for homes that are above the median house price in Perth thus putting upward pressure on this price.

Whilst the world demand for commodities remains strong, so do the jobs and demand for labour in WA. In fact, in the 3 months to August this year, WA showed a rise in job vacancies of 16.5% against the national trend where job vacancies fell 3.9%. Mining continues to lead the way for labour in WA with 4,100 jobs waiting to be filled, up from 1,600 a year ago. This is why people are moving to WA.

- 2-

So today we see properties selling quickly, a shortage of properties available for sale and prices rising strongly on fairly thin volumes. Each sale virtually sets a new price level as the market marches onward and upward.

A typical example was the auction of an investment office in West Perth recently. The property was bid aggressively above reserve price with 12 genuine active bidders. The successful bid left 11 people still wanting an investment property and probably now more hungry than ever. Do you think that they will be even more hungry when the next property becomes available? This would result in further break out prices in the future.

In the residential market the story is similar. Often good properties today could sell 2, 3 or 4 times over. Prices will continue to rise until one of two things happen.

Firstly, prices will be bid to levels where others who own good properties can’t resist the price and become tempted to sell, thus increasing the supply and helping to satisfy demand. This has not happened to date with owners holding on knowing that they either need to turn around and re-buy or re-invest elsewhere.

The other alternative is that these buyers get disillusioned and decide not to buy. The tendency then is to turn to the rental market with a resultant pressure on rents and a fall in the vacancy rate. We have seen this to a certain extent recently. An upward increase in rents only puts further pressure on prices as rental returns increase.

It all boils down to basic economies, supply and demand. Today demand exceeds supply, particularly for good properties with growth prospects. Excess demand spills to properties which traditionally don’t normally have constant growth prospects such as home units and regional areas of WA. Both have shown strong recent growth.